The gig economy and employment law in Ireland

19 November 2018

The origins of the “gig economy” can be traced back to the worldwide recession in 2008/2009, when people began to take on shorter term freelance “gig” type roles (involving personal service) which went outside the normal parameters of the employer/employee relationship. Very quickly, internet applications to host those services and put users in touch with the service providers came into being. These applications are now called platforms. While technology has kept up with the increase of these platforms, employment law has not, particularly in Ireland.

It has been noted that the gig economy’s development has been held back in some countries due to technical, cultural or regulatory issues. The arrival of Uber and various other platforms (Deliveroo, Citysprint), along with class actions in the UK and worldwide, has been seen as a major impetus for employment law to catch up - particularly in terms of how this new model of work fits within existing legal definitions.

Employee or self-employed contractor

Many countries, like Ireland, distinguish only between employees and self employed contractors. The tests to make that distinction are also very common across various jurisdictions. Overall, the distinguishing feature of “control” is the most common factor used to determine whether someone is an employee or not. However, there is an interesting body of case-law, in Ireland on this point, and more so in the UK. This is worth examining to determine whether the Irish system needs to consider adapting its employment law to deal with the various issues created by the gig economy.

The introduction of the Employment (Miscellaneous Provisions) Bill 2017 should also be included in this consideration. This Bill includes a provision whereby an employer who incorrectly designates an employee as a self-employed contractor may face a fine of up to €5,000 and/or imprisonment, or both. This is being criticised by employer bodies, and it remains to be seen whether it will be in the final version of the legislation.

There are similar examples in other jurisdictions. Misclassification of a worker as an independent contractor in the Czech Republic can result in a fine of up to €400,000! The US is notorious for its lack of adequate employment protection due to the system of ‘at will’ employment. However, in March 2017, Lyft (an Uber equivalent) paid $27 million by way of settlement to 95,000 Californian drivers who claimed that they had been misclassified as independent contractors.

Development of the current Irish position: the ‘tests’

Over the years, various tests have been used by the courts/tribunals to determine the employment status of individuals. These include the ‘control’ test, the ‘in enterprise on one’s own account’ test, the ‘mutuality of obligation’ test, the ‘integration’ test (albeit to a lesser extent recently), and the ‘right of substitution’ test. Some of these have been more dominant in the cases, and are discussed below.

Control

As an indication of just how slowly the Irish system has been in catching up on new ways of working, we are still heavily relying on the seminal 1998 High Court case of Henry Denny & Sons Ltd v Minister for Social Welfare (1988 IR 34). This is a case which was reported when the worldwide web was still in its infancy, and the notion of portable applications was likely still in a research lab!

In this case, a supermarket demonstrator (Ms Mahon) was engaged under a contract which referred to her as an independent contractor. She was not eligible under her contract to become a member of the company pension scheme or a trade union. Ms. Mahon was not supervised carrying out her work, but the company provided her with necessary clothing and equipment to carry out her function. She invoiced the company after carrying out the demonstration and this had to be signed off by the supermarket store manager. Ms. Mahon was also required to comply with any reasonable direction given to her by the store manager. She was not allowed to work for any competitors, and could not routinely hire other people to carry out her work. Accordingly, Ms. Mahon was found by the High Court to be an employee of Henry Denny & Sons, despite the written terms of the contract.

In the Supreme Court, Keane J declared that it was prudent to look behind the contract to establish the real relationship between the parties, and this is an exercise that is still common in all cases - whether they are before the courts, Workplace Relations Commission (“WRC”), Department of Employment Affairs and Social Protection, or elsewhere. Some of the factors pointed to by Keane J as being appropriate for consideration in the test to differentiate between employees and self-employed contractors are as follows:

Does the person perform services for another person and not for him/herself?

How strong is the degree of control over how work is to be performed (this was highlighted as being indicative and not decisive)?

A person is more likely to be correctly working on their own account if they provide the necessary premises, equipment, and some other form of investment, including employing others to assist in the business.

A person is more likely to be correctly working on their own account if their profit depends on how efficiently they do the work

A number of years later, the Employment Status Group was set up under the Programme for Prosperity and Fairness. The group was set up due to concerns about the increasing numbers of individuals categorised as ‘self employed’ when the ‘indicators’ were that ‘employee’ status would be more appropriate. The Group issued a Code of Practice for Determining Employment or Self-Employment Status of Individuals (‘the CoP’), which was last updated in 2007 (i.e. before the recession and before the explosion of the gig economy).

The CoP sets out criteria indicating that an individual is an employee, along with additional factors to be considered, and also sets out the criteria which would point to an individual being self-employed along with additional factors to be considered. The Employment (Miscellaneous Provisions) Bill also sets out similar criteria. Both should be considered in detail, but broadly, include the following points. Any one criterion will not automatically point to a conclusion of employment status of itself, but regard should be had to all the circumstances of the situation.

An EMPLOYEE:

Is under the control of another person who directs as to how, when and where the work is to be carried out.

Supplies labour only and works for one person or for one business.

Receives a fixed hourly/weekly/monthly wage.

Cannot subcontract the work.

Does not supply materials for the job or equipment other than small tools of the trade.

Does not take on personal financial risk in carrying out the work.

Does not assume any responsibility for investment and management in the business.

Does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements.

Owns his or her own business and assumes responsibility for investment and management in the enterprise

Is exposed to financial risk by having to bear the cost of making good faulty or substandard work carried out, but also has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks.

Has control over what is done, how it is done, when and where it is done and whether he or she does it personally.

Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken.

Can provide the same services to more than one person or business at the same time.

Provides the materials for the job and the equipment and machinery necessary for the job, other than the small tools of the trade or equipment.

Has a fixed place of business where materials, equipment etc. can be stored.

Costs and agrees a price for the job

Provides his or her own insurance cover e.g. public liability cover, etc.

Controls the hours of work in fulfilling the job obligations.

In the most recent Irish case (June 2018) on this issue, six plasterers were found to be employees by an Adjudication Officer in the WRC, who made awards totalling more than €18,000 between them under the Payment of Wages Act 1991, the Organisation of Working Time Act 1997-2015, and the Terms of Employment (Information) Act 1994 to 2014. The employing company did not attend the hearings at which the workers gave evidence that they had been hired at a rate of €180 per day. The employees were given fixed hours of work with two 30-minute breaks. The company also supplied material and equipment, and instructed the workers at all times as to what they were to work on, moving them from one task to another as required. While the plasterers supplied their own work clothing, this had been the case in that trade for many years.

The union representing the plasterers used both the control test in the Denny case and the mutuality of obligation test (discussed below) to argue that the plasterers were employees. The Adjudication Officer also had regard to the Code of Practice, and the fact that it states that an individual would normally be an employee if he or she: “is under the control of another person who directs as to how the work is to be carried out; supplies labour only; receives a fixed hourly/weekly/monthly wage; cannot subcontract the work…; does not supply materials for the job; does not provide equipment other than the small tools of the trade…; is not exposed to personal financial risk in carrying out the work; does not assume any responsibility for investment and management in the business; does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from engagements; works set hours or a given number of hours per week or month; works for one person of one business”. (ADJ-00010186, ADJ-00010949, ADJ-00009498, ADJ-00010183, ADJ-00010195, ADJ-00010189 – reported in IRN, 25 28.6.18)

As such the “control” test is still very dominant in Irish law in deciding on the employment status of an individual.

Mutuality of obligation

Another important case on this issue is Minister for Agriculture and Food v Barry (2008 IEHC 216). This involves Temporary Vetinary Inspectors who lost their jobs at a Galtee Plant in 2004. They sought notice and redundancy payments which the Minister resisted, based on an argument that they were self-employed contractors. So far it has been before the Employment Appeal Tribunal (“EAT”) three times, at the High Court twice, and at the Supreme Court.

The first time this claim was decided at the EAT, in 2006, the Tribunal panel found in favour of the claimants in a two-to-one decision. That decision was appealed to the High Court, which remitted it back to the EAT who found that they were independent contractors. This decision was also appealed to the High Court and then further appealed to the Supreme Court. The Supreme Court sent the case back to the EAT last year, and this further decision that they were self employed contractors has been appealed (for the third time) to the High Court.

The most recent appeal to the High Court was of the EAT’s majority decision that the inspectors were not employees of the Minister. The majority decision followed the reasoning of Edwards J in the High Court (in a decision on the case in 2008) where he referred to UK caselaw in detail, and examined the factor of mutuality of obligation in determining employment status. This means that there must be mutual obligations on the employer to provide work, and on the employee to perform work for the employer. It this mutuality is not present, then there is no contract of employment. He referred to a UK case which called it the “irreducible minimum of mutual obligation necessary to create a contract of service” (Carmichael v National Power plc 1999 ICR 1226).

In particular, Edwards J pointed to the fact that if there is no mutuality of obligation, “it is not necessary to go any further. Whatever the relationship is, it cannot amount to a contract of service. However, if mutuality of obligation is found to exist, the mere fact of its existence is not, of itself, determinative of the nature of the relationship and it is necessary to examine the relationship further.”

This ‘mutuality of obligation’ test was the first of several tests that were considered in determining whether the vets were employees or contractors: if this test was not passed then the other tests, such as ‘control’, ‘enterprise’, ‘integration’ and ‘right of substitution’ are essentially immaterial. The majority decision was not satisfied that the claimants had established that there was ‘mutuality of obligation’ between them and the Minister. Passing this test is deemed to be essential for the claim they were employees – and not independent contractors – to proceed, and it is then necessary to consider other tests such as ‘control’, ‘enterprise’ and ‘integration.’

This concept and initial hurdle of mutuality of obligation was considered more recently in the High Court, in McKayed v Forbidden City (2016 IEHC 722) which referred extensively to the Barry decision. This case involved a translator who was engaged by the defendant and claimed to be an employee. The High Court found that the fact that he had been given work on a regular basis for a particular period did not create an obligation to provide work. Also of note was that the fact of being on-call did not convince the court that he was an employee – it was found that the translator was free to refuse work when called by the defendant (whether he did so or not).

Right of substitution

The Code of Practice states that the ability to hire sub-contractors or other people to do the work is one of the factors which would be indicative of contractor status. However, the Supreme Court, in Castleisland Breeding Society v Minister for Social and Family Affairs (2004 IESC 40) looked at this factor, and found that a prohibition on the use of substitutes without prior approval was not fatal to a finding of self-employed contractor status. This is the exact point on which Deliveroo won its case before the Central Arbitration Committee (“CAC”) in the UK - i.e. the fact that riders could (and did) substitute themselves with others (Independent Workers’ Union of Great Britain v Roofoods Ltd t/a Deliveroo, 2018 IRLR 84). However, it’s also likely that that the Castleisland case can be distinguished on its own facts. The only reason that prior consent to the use of substitutes was required was because the work (artificial insemination) was highly regulated and the Breeding Society needed to ensure that testing complied with statutory requirements. As such it was a reasonable requirement in a contract for services.

The UK

In the UK there are three basic categories for people who provide services. At one end are ‘employees’ who have the most legal protection (for example, protection against unfair dismissal, maternity and family leave rights, holiday pay and sick pay), but are under the control and supervision of their employer. At the other end of the scale are self-employed individuals, who have little legal protection as they are essentially in business on their own account, but have a high level of flexibility (for example, in terms of choosing when and if to accept work) and pay tax and national insurance contributions at different levels from an employee. In the UK, between these two extremes (unlike many other countries) is a 'middle category' between employees and self-employed individuals called 'worker'. Worker status does not give full employee rights, but it does give individuals the right to annual paid holiday and to the National Minimum Wage. For some, it may also result in a right to pension contributions in accordance with the auto-enrolment rules.

On 28 October 2016, the London Central Employment Tribunal ruled that Uber drivers had ‘worker’ status and were not self-employed (Aslam v Uber 2017 IRLR 4). Uber's position was that it operated solely as a software platform provider which links customers (or ‘riders’) with self-employed drivers who are willing to provide transport services. Uber viewed the drivers as 'partners', and each driver as, essentially, a self-employed individual operating their own small business (so they had 30,000 small businesses in fact). In support of its position, Uber emphasised that drivers are under no obligation whatsoever to turn on the Uber app at any point - and, indeed, can choose to turn it off or on as suits them and their lifestyle. In addition, even if they are logged onto the app, there is no obligation to accept any rides that are offered to them. This lack of obligation to accept any work offered is often at odds with a finding of worker status. Uber claimed that this offered drivers a high degree of flexibility and left them free to combine using the Uber app with other work and lifestyle commitments.

The terms and conditions which both drivers and riders using the app sign up to, state that there is a contract (to provide transport services to someone who wishes to travel somewhere) between the driver and the rider, with Uber only acting as the intermediary platform between them. Despite this, the Tribunal did not consider that realistically it could be said that there was a contract between a rider and a driver, given that when the rider and driver sign up to Uber's terms they don't know the identity of the alleged other party to the contract (or parties, as in the course of using the app many different drivers will, of course, transport many different riders). The destination of the journey, a key term of the supposed contract, is not disclosed to the driver until after they have collected the rider, and the fee for that ride is both set and collected by Uber.

The Tribunal held that Uber was not a technology company offering a software platform as it claimed, but was fundamentally in the business of providing transport services (and not only software services to others who provide transport services). In doing so, it took into account that Uber was, in effect, marketing products which could only be transportation products - whether ride services to customers, or delivery services such as Uber Eats.

The Tribunal decided that, for any periods during which an Uber driver (a) has the Uber app switched on; (b) is within the territory in which the driver is authorised to work; and (c) is able and willing to accept rides offered to them, the driver is a worker of Uber.

A key element in the Tribunal's decision was the level of control that it considered Uber exercised over the drivers. In addition to the points above concerning key information not being known to the parties and the setting and collecting of the fare, Uber set the default route for journeys through its GPS system, and interviews and recruits drivers. If drivers do not accept a certain number of fares, Uber locks them out of the app for a short period. If customers complain about their Uber experience, Uber takes what is in effect disciplinary action against drivers.

The Tribunal held that, taken together, these ‘control’ mechanisms pointed towards a worker relationship. Whatever Uber's intention, the Tribunal took the view that the way that Uber operates in practice meant that the drivers are workers. Uber appealed the decision to the Employment Appeal Tribunal, which upheld the Tribunal’s decision.

Throughout 2017, courts and tribunals in the UK have tended to find against companies on this issue, generally on the grounds that the control exercised by them and a requirement of personal service pointed against individuals being self-employed for the purposes of employment law.

The one major exception in 2017 was Deliveroo. As noted above, their drivers were found not to be workers by the CAC because they could appoint substitutes to do the work. In fact, one rider gave evidence that he would regularly give a friend his app to download and his password details, taking 20% of the Deliveroo fee for himself. He was essentially profiting from the substitution. As such the CAC ruled that it could be said that the riders did not undertake to do the work or service personally. Furthermore, the substitution clause was prominent in the contract, was drawn to the riders’ attention and was operated in practice. The fact that riders could abandon a job part way through was also significant.

June 2018 was seen as a very significant month for the gig economy. Firstly, the High Court rejected the relevant Trade Union’s application to judicially review the CAC decision that Deliveroo riders were not workers. Secondly, this decision followed the Supreme Court decision in the “Pimlico Plumbers” case (Pimlico Plumbers Ltd and another v Smith, 2018 IRLR 872). This case is frequently associated with the gig economy, although in fact it should not be as it does not arise out of an internet platform which puts individual workers in touch with end users. It is simply a case where a plumber, who was engaged under a contract of service, was found to be a worker. However, the principles discussed in the case about definitions of employment are relevant to the gig economy cases. The case arose when the individual in question sought part-time employment after a health issue, which was refused and he was dismissed. He claimed to be either an employee or a worker, while Pimlico Plumber argued that he was a self-employed contractor.

One of the sole factors which was found to be indicative of worker status was whether there was an obligation to personally perform the work. While the contract said that the plumber was an independent contractor, the company manual referred to a 40-hour week, and there was an obligation to drive a branded van (with a tracker), wear a branded uniform, carry a Pimlico ID case and follow administrative instructions from the control centre. While the contract said that there was no obligation to give or accept work, the factual circumstances pointed to a different situation (he was in fact required to be available for 40 hours per week). The Irish cases have similarly followed this practice of looking beyond what is recorded in the contract.

The Court of Appeal in this case had also looked at the personal service element of the situation. Performance of the contract had to be personal - Pimlico Plumbers relied on the worker’s skills, he gave a warranty as to his competence, and had to have a high standard of conduct and appearance. Furthermore, it considered that although there was a right of substitution, this was not unfettered. This was also considered to be relevant by the Supreme Court, which noted that any substitution had to be to another Pimlico operative.

Coupled with the various factors above, including the fact that there was also reference in the contract to ‘wages’, ‘gross misconduct’ and ‘dismissal’, the limited right of substitution was fatal to self-employment in this case. It wasn’t enough to defeat the personal service obligation. Contrast this against the Castleisland Breeding Society case, where the fettering of the right of substitution (for regulatory reasons) was not fatal to an ultimate a finding of self-employment.

What next?

In the UK, the Matthew Taylor report on Modern Working Practices published in the summer of 2017 contained various recommendations for clarifying and improving the employment tax regime, definitions of employment status, and how this applies to gig economy workers. A central recommendation was to align entirely the definitions of employment status for employment and tax law, and since then the UK Government has committed to publishing an employment status “discussion paper” as part of the response to the review. This suggests something short of a consultation on concrete reform proposals, but the paper will explore “the case and options for longer-term reform”.

Ireland conducted a similar review in January 2018, when the Department of Employment Affairs and Social Protection published a report on the use of intermediary structures and self-employment arrangements and their implications on social insurance and tax revenues.

Nevertheless, Ireland is nowhere near the UK in terms of development of these issues, given that the UK has the hybrid ‘worker’ status already. In other countries, hybrid status of this type arises where the contract is economically dependent on one client, and this might be where Ireland should pitch its aspirations. For instance, Spain has a distinction in terms of a category of self employment which applies while an individual is economically dependent on one client. Canada also distinguishes between independent and dependent contractors. The latter are dependent on a long-term and stable relationship with a particular client, which gives them a right to minimum notice. Slovenia also operates a similar system, whereby if a contractor is dependent on one client for 80% or more of their annual income, they gain limited statutory protections. Austria operates a similar regime.

Overall, the EU is encouraging this new type of economy, and the Commission has said that new business models can make an important contribution to jobs and growth in the EU - if developed in a responsible manner. Responsibility in the implementation of business models is key. It is questionable whether the Employment (Miscellaneous Provisions) Bill, once enacted, will assist at all with working under the gig economy model in Ireland.

This information has been compiled as a guidance note for information purposes only. It does not constitute legal advice and should not be relied upon in dealing with specific matters. Professional legal advice should be obtained before taking or refraining from any action as a result of the content of this document.

This article first appeared as part of Legal Island’s employment law update service.